USA: Motor industry chiefs see more mergers and acquisitions ahead, especially in Asia
Automotive executives are losing their taste for strategic alliances and expect to see an increase in mergers and acquisitions in the industry over the next five years, particularly in Asia, according to the results of the fifth annual survey of the automotive industry by consultancy KPMG LLP.
Consolidation was seen as occurring globally, but respondents in particular focused on Asia, where 73% said they expect an increase. 60% pointed to an increase in Europe, while 50% of those polled saw stepped up M&A activity in North America.
Automotive executives cited cost pressures and lack of profitability as the main reasons they believe industry consolidation will increase, followed by poor financial performance and access to new markets.
"With improving economic conditions, we're seeing auto companies increase their tolerance for risk-taking, which includes seeking acquisitions," said KPMG automotive practice national industry director Brian Ambrose. "Asia scored the highest in our survey, which makes sense given the increased investment and commitment OEMs and suppliers are making in the region."
The results are a marked change from last year's survey when 72% of respondents indicated that cooperative ventures would be more important than majority owned acquisitions. Automotive companies, particularly suppliers, have found partnerships to be more difficult to maintain than originally thought, Ambrose said.
"Pretty soon the partners realise the arrangement isn't providing the benefits they originally expected," said KPMG automotive transaction services group partner in charge Gary Silberg. "Partnerships require an inordinate amount of communication and there is always a struggle [over] who is in charge."
Respondents most often cited automotive components suppliers as the industry sector most likely to see an increase in consolidation. 59% of executives saw an increase in M&A among Tier 2 suppliers, while 56% indicated an increase for Tier 1 companies. Consolidation among suppliers is being driven in part by a move away from the manufacture of individual vehicle components to the fabrication of more value-added subassemblies, or 'modules', Ambrose said.
Only 44% expected to see a rise in consolidation among vehicle manufacturers, while 50% saw an increase among dealers.